Correlation Between Farmmi and BG Foods
Can any of the company-specific risk be diversified away by investing in both Farmmi and BG Foods at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Farmmi and BG Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Farmmi Inc and BG Foods, you can compare the effects of market volatilities on Farmmi and BG Foods and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Farmmi with a short position of BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmmi and BG Foods.
Diversification Opportunities for Farmmi and BG Foods
Good diversification
The 3 months correlation between Farmmi and BGS is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Farmmi Inc and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and Farmmi is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Farmmi Inc are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Farmmi i.e., Farmmi and BG Foods go up and down completely randomly.
Pair Corralation between Farmmi and BG Foods
Given the investment horizon of 90 days Farmmi Inc is expected to under-perform the BG Foods. In addition to that, Farmmi is 1.72 times more volatile than BG Foods. It trades about -0.08 of its total potential returns per unit of risk. BG Foods is currently generating about -0.04 per unit of volatility. If you would invest 1,367 in BG Foods on August 31, 2024 and sell it today you would lose (699.00) from holding BG Foods or give up 51.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Farmmi Inc vs. BG Foods
Performance |
| Timeline |
| Farmmi Inc |
| BG Foods |
Farmmi and BG Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Farmmi and BG Foods
The main advantage of trading using opposite Farmmi and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmmi position performs unexpectedly, BG Foods can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BG Foods will offset losses from the drop in BG Foods' long position.The idea behind Farmmi Inc and BG Foods pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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